This paper studies the impact of foreclosure delay on the U.S. labor market. We first document that the average time required to initiate and complete a home foreclosure rose from 9 months prior to the Great Recession to 15 months during the Great Recession and afterward. We also document that many borrowers in foreclosure ultimately exit foreclosure and keep their homes by making up for missed mortgage payments. These two observations leads us to analyze the impact of foreclosure delay as an implicit credit line from a lender to a borrower (mortgagor). We develop a search model in which foreclosure delay provides unemployed mortgagors with additional time to search for high-paying jobs. We find that foreclosure delay decreases the employment rate among mortgagors by about 0.75 percentage points, it doubles the stock of delinquent mortgages, it increases the homeownership rate by 0.3 percentage points, and it also increases job match quality. Severe foreclosure delay, in which the time to foreclose rose to 24 months in Florida and New Jersey, depresses mortgagor employment by up to 1.3 percentage points. We also find that the impact of foreclosure delay on employment is roughly equivalent to a 4–6 month extension of unemployment benefits.
- Business cycles
- Mortgage default